Investing via a limited company

Checklists

PROS

You can still (currently) deduct the finance costs from the rental income.

It can be a good way to transfer property tax efficiently from an inheritance perspective

You pay a lower rate of tax, compared to higher and additional rates of income tax.

All costs and income will need to be appropriately accounted for and abide by the Companies Act 2006, which you may not do if you own property individually.

Profits can be retained in the company rather than drawn as income, thereby avoiding income tax charges.

There are favourable rates on sale of investment property compared with a potential 28% when selling individually owned property.

Indexation allowance on sale of investment property allows for the effects of inflation.

CONS

If you have an existing portfolio, you can’t just transfer it into a company as this may trigger both stamp duty and capital gain costs as you will have deemed to have ‘sold’ the properties to the company from your ownership. However, incorporation relief may be available to some landlords operating a company; it is essential you take expert advice. Also, if you are running a legitimate partnership, there may be grounds for stamp duty savings in the future.

You need to consider your financing options if you hold property in a company, although improving, not all buy to let lenders lend on company held lets.

It is not only buy to let landlords that have been hit with extra tax bills. Company directors that take dividends have lost much of their ability to pay them tax free.

You can only take income from the buy to lets if you make the required profit.

Corporation tax is currently planned to reduce, but once your property is in a company you won’t be able just to transfer back to your own ownership without considering your tax implications.

You will have to produce accounts according to rules and regulations laid out by the government and this may mean incurring accounting bills of £1,000 a year or more.

Bank accounts will be considered ‘company accounts’ so won’t be free of charge.

For those who own property personally, there can be benefits when selling the property if you have lived there. This is the opposite for company-owned property, and there can be serious consequences if you live in your company-owned property.

All our information is brought to you by Kate Faulkner, author of Which? Property books and one of the UK's top property experts.